Kenya’s capital markets regulator said on Friday it was taking punitive action against former senior managers of Uchumi Supermarkets and a financial advisory firm over the handling of a 2014 rights issue.
Uchumi Supermarkets Limited (USL) raised 895.8 million shillings ($8.80 million) from the rights issue, which it said was to be used for expansion.
The Capital Markets Authority said in a statement it had found former CEO Jonathan Ciano, former finance director Chadwick Okumu and three former directors failed to fully disclose material information to investors and misused proceeds of the rights issue.
It said an adviser on the deal, Faida Investment Bank, had failed to inform the CMA of material changes that were made to the rights issue’s information memorandum.
“The Board of the Capital Markets Authority (CMA) has taken enforcement action against the former USL Chief Executive and Finance Manager, former USL directors and the rights issue’s transaction advisor for regulatory breaches,” it said in a statement.
CMA said after Uchumi received the rights issue proceeds and paid expenses, the money was then used to pay supplier debts instead of branch expansion.
CMA said as a result of this and other breaches, it had decided to fine Ciano, the former CEO, 5 million shillings and asked him to return 13.5 million shillings for failure to disclose a conflict of interest to the board.
It also barred Khadija Mire, its former chairman, from holding any position in any listed company for two years and asked her to refund some 1.77 million shillings she earned in 2014 and 2015.
Okumu, Uchumi’s former finance director, was barred from holding any position in any listed company for two years.
Also penalised was former director James Murigu, who was asked to refund money earned in 2014 and 2015, and barred from holding office in a listed company.
Another director, Bartholomew Ragalo, was given a regulatory caution and asked to return his allowances from 2014 and 2015.
CMA said it had barred Faida Investment Bank from doing any transaction advisory services for six months.
Ciano told Reuters he had no comment on the CMA statement as he had not been notified. Okumu, who was not immediately available to comment, has in the past denied wrongdoing.
Faida Investment Bank and the other executives sanctioned by the CMA could not immediately be reached for comment on Friday.
Uchumi reported losses of 1 billion shillings in the six months to the end of December 2015 after a loss for the 12 months to the end of June 2015 of 3.6 billion shillings, which was restated from 3.2 billion due to the malpractices uncovered.
It secured shareholder approval in January for a recapitalisation of up to 5 billion shillings to help turn the firm around and appointed Kenya’s Pamoja Capital to lead the search for a potential investor.
(George Obulutsa; Editing by Adrian Croft)